The USD traded slightly higher against the EUR, GBP, and CHF but was weaker against the rest of its G10 counterparts after the Fed’s Beige Book and as political leaders in the US expressed optimism that a deal can be reached on the budget. The comments by lawmakers were well received by equity markets which turned around from steep declines early in the session to finish the day with strong gains. The Beige Book showed that the economy grew at a “measured pace” amid fiscal cliff concerns. Most districts reported improving markets for homes, moderate growth in consumer spending, and modest gains in hiring. Most districts also reported a weakened manufacturing sector.
Officials express optimism on cliff
President Obama said that he believes both parties can agree on a budget deal in the coming weeks and that more republicans are agreeing on a “balanced approach”. He waved a pen during his speech indicating his eagerness to reach an agreement and warned that the economy will “go south” if “we get this wrong”. On the other side of the aisle, House Speaker Boehner said that he is “optimistic” on fiscal negotiations.
New home sales disappointed with a monthly decline of -0.3% to 368k in October. This was less than the consensus of a 390k print and may have been distorted by Hurricane Sandy as sales in the northeast plunged. The report also ended the string of recent positive housing data.
EUR remains under pressure
In Europe, the EU’s Rehn put the ball back in Greece’s court and said that it is “up to Greece” to design and run the debt buyback operation. Greek Finance Minister Stournaras already attempted to manage expectations saying that there is a contingency plan if the debt buyback fails, although he didn’t reveal any details of the plan. The EUR was broadly weaker amid implementation concerns for Greece and ahead of national parliaments voting on the next aid disbursement for the troubled country. EUR/USD dipped below the 1.29 figure to find support around the 55-week SMA before rebounding to current levels of around 1.2930.
US equities rallied after a negative start to the day with the Dow Jones Industrial Average climbing to finish the higher by about +0.83% while the S&P 500 rose by around +0.79%. Commodities were broadly lower with gold experiencing a sharp decline early in the session. The yellow metal broke below key technical levels and plunged before finding support above the $1700 figure. US treasury yields are mostly lower as bond markets were reluctant to follow the optimism seen in equity market.
On the data front for the upcoming Asia/Pacific session are Japan’s October retail sales, weekly securities investment figures, and a speech by Bank of Japan Board Member Shirai. Australia sees the release of October new home sales and 3Q private capital expenditure while New Zealand’s ANZ business confidence and activity outlook for November are due.